Analysis on cross-border trade of the agricultural commodities along the east-west economic corrifors: The case of quang tri province, vietnam

Nội dung text: Analysis on cross-border trade of the agricultural commodities along the east-west economic corrifors: The case of quang tri province, vietnam

1. ANALYSIS ON CROSS-BORDER TRADE OF THE AGRICULTURAL COMMODITIES ALONG THE EAST-WEST ECONOMIC CORRIFORS: THE CASE OF QUANG TRI PROVINCE, VIETNAM Nguyen Dang Hao – College of Economics–Hue University Abstract This study aims to conduct an analysis on the cross-border trade of the agricultural commodities for Quang Tri province. Moreover, the article provides technical and policy recommendations for the province to facilitate and further develop the cross-border trade of the sector in order to contribute to the improvement of livelihoods and employments for farmers in the province. Key words:cross-border trade, agricultural commodities, Quang tri province 1. Introduction Formal and informal cross border trade has increased since the 1990’s of the last century as a result of economic liberalization policies, population growth, and urbanization. This expansion has been credited with high commitment of the Asean members located along to the East West Economic Corridor (EWEC) to foster the mutual trade and ensure the deeply regional integration. Cross-border trade play an important role in improving economic growth, and benefiting the population through employment, market/ product diversification, increased outlets for goods produced and manufactured in the region and improvements in food availability (MI, 2009). It has been suggested that sustained economic growth in East West Economic Corridor (EWEC) will increasingly be driven by non-traditional exports such as agricultural products, livestock, tourism, handicrafts and manufactured goods. This implies the strong connection between trade and other sectors of the host economies such as agricultural production and processing, and manufacturing (MI, 2009). So, cross-border trade has been considered as one of the key development strategies identified in many countries. Development of cross-border trade has not only pushed the development of the economic sectors such as agriculture, tourism and manufacturing but it also offers significant benefits for the poor who are mainly living in rural areas along to EWEC. In Vietnam, cross-border trade is the fast growing. It has also been playing an important role in the task of poverty reduction by creating job opportunities and increasing income. However, there is much concern that the gains from cross-border trade remain fragile and conditions for sustained and pro-poor economic growth are not yet in place. The stark challenges still facing border region are exemplified by the fact that the proportion of the poor in the region is still the largest in EWEC. Located on the threshold of the EWEC in Vietnam side with Lao Bao Special Economic and Trade Zone, Quang Tri province has great potentials and competitive advantages in cross- border trade and inclusive economic development and growth. However, the current economic 577
2. performances are inadequate to the potentials. Recent economic indicators showed that the economic growth and development in the province has been inequitable since people who live near the EWEC route (National Road no. 9 or AH16) benefit much more than those who live in the remote areas and far from the route. The Lao Bao Special Economic and Trade Zone has been operating for more than 15 years. Achievements in terms of local economic development and attraction of external and internal investment have been made. However, the zone is expected to contribute more to the local and regional economic development since the central and local Governments offered special policy support and investments. The zone is being developed partially mainly in the economic center; people who live in the zone but far from the center are benefiting limitedly from the economic development. The agricultural sector continues playing an important role in the economic development of the province in terms of generation of both incomes and employments for local labor force. However, the cross-border trade of agricultural commodities with other countries along the EWEC (e.g. Lao PDR, Thailand and Myanmar) remains low in the total value of the sector. Particularly, farmers who live on agricultural production are inactive and least involved in the cross-border trade activities of their commodities. Accordingly, they have limited benefits from the value chains where there is cross-border trade. The overall objective of this study is to conduct an analysis on the cross-border trade of the agricultural commodities for Quang Tri province and provide technical and policy recommendations for the province to facilitate and further develop the cross-border trade of the sector in order to contribute to the improvement of livelihoods and employments for farmers in the province. The following question will be addressed in this study: i) What is the current cross-border trade of agriculture commodities along the EWEC in Quang Tri province?What kind of agricultural commodities that have been traded at Lao Bao and Dansavanh custom point?; ii) Under the context of Asean Economic Community: a) What are potentials and opportunities for cross-border trade of agriculture commodities? And what is the limitation of VN products for cross border trade?b) Which cross-border trade of agriculture commodities should develop to increase income and create employment for the households in corridor?; c)What are the key challenges and enabling factors for cross-border agricultural trade in Quang Tri?; d) Which are recommendations and action plan to support the cross-border trade of agriculture commodities in Quang Tri? 2.Methodology Theoretically, cross border trade is defined as the flow of goods and services across international land borders between the countries. The trend of cross-border trade is increasing and there is an asymmetry of cross border trade balance. However, cross-border trade generally improves social welfare and stimulates economic growth (MI, 2009). There are various reasons to explain the gains from cross-border trade. Firstly, it enables countries to specialize in line with their comparative advantages and achieve economies of scale that would not be possible without 578
3. specialization. This ensures that scarce resources are optimally allocated in accordance with prevailing opportunity costs. In the case of agricultural sector, cross-border trade offers the opportunities for broadly-based expansion in tradable activities (e.g. cash crops or tradable food crops) which theoretically, generate much employment and income for the poor (Dorward et al, 2003). So cross-border trade can significantly contribute to poverty reduction (MI, 2009). In practice, factors likely to influence the functioning of cross-border trade of agriculture commodities are: structure (number of players and entry and exit conditions), availability of marketable surpluses, access to capital and market information, technology, infrastructure, seasonality, consumer demand and random events.Government policies aimed at improving infrastructure, communication, access to capital and information can raise the potential for cross – border trade (ADB, 2006; ADB, 2009). However, there are numerous challenges that prevent the cross-border trade of agricultural commodities from functioning optimally, partly due to the inherent nature of agricultural products (lagged response of supply, low demand elasticity, seasonality) and partly because of trade policies, market structure and low business capacity of the small farmers. Besides, there is much concern about an inequitable distribution of the benefits from cross-border trade since direct benefits of cross-border trade appear mainly along major transport corridors and border communities (MI, 2009). In order to meet the objectives of the study, the conceptual framework of this study centers on the cross-border agriculture trading activities (Figure 1). It will begin by analyzing overall cross-border trade relations, between Quang Tri province and neighboring countries (Thailand and Laos) as well as investigating trade andinvestments agreements and trade policies which will affect state of cross-border agriculture tradebetween Quang Tri and neighboring countries. Then it will examine current supportive policies such as infrastructuresupport for enhancing transport and telecommunications linkages, market and trading centers as well as banking. It will also be proposed potential agriculture commodities which are preliminarily suitable to be developed as special border economic zones. Finally, it will recommend policy implications needed for fostering the cross-border trade of agriculture commodities in Quang Tri province. 2.5.Data collection Secondary data: Various kinds of secondary data are collected for this study. The most important sources of that data are from MI’s project documents and reports.Data sources come from local organizations such as Department of Agriculture and Rural Development (DARD), Department of Industry and Trade, Department of Custom, Statistical Department and reports from target districts and communes. Primary data: Both qualitative and quantitative methods will be used to generate primary data. The fieldwork began by use of qualitative methods entailing interviews of various actors along the corridor, understanding the geographical coverage of the chains and collecting data on average marketing costs (to determine their seasonal trends) and other characteristics of the 579
4. chains. During this time a scoping study will be also carried out in order to determine market centres where quantitative data will be collected using a semi-structured questionnaire. 3. Findings and discussions 3.1. East‐West Economic Corridor (EWEC) Created based on a road of 1,450 km,the East–West Economic corridor (EWEC) is an economic development program initiated in order to promote development and integration of four Southeast Asian countries, namely: Myanmar, Thailand, Laos and Vietn am (Figure 2). The concept was agreed upon in 1998 at the Ministerial Conference of the Greater Mekong Subregion, organized in Manila, the Philippines. This corridor became operational on December 12, 2006 and trade policy was made on the basis of aggregate commitments agreed in the Common Effective Preferential Tariff Scheme (CEPT)/ Asean Free Trade Area (AFTA) and the agreements and protocols involved. Principles for the commitmentsin ATIGA are that each Asean country member must grant each other preferential rate equivalent or more favorable preferential Figure 2. East – West Economic Corridor (EWEC) rates for the partner countries of the free trade agreement (FTA) that ASEAN is a party of the agreement. According to Article 19 of ATIGA, Asean memberStates shall eliminate import duties on all products traded between the Member States by 2010 for ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) and by 2015, with flexibility to 2018, for Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV). Besides, each member state undertakes not to introduce Tariff Rate Quotas (TRQs) on the importation of any goods originating in other member states or on the exportation of any goods destined for the territory of the other member.Each Member State shall not adopt or maintain any non-tariff measure on the importation of any good of any other Member State or on the exportation of any good destined for the territory of any other Member State, except in accordance with its WTO rights and obligations or in accordance with this Agreement. Each Member State shall ensure the transparency of its non-tariff measures permitted in paragraph 1 of this Article in accordance with Article 12 and shall ensure that any such measures are not 580
5. prepared, adopted or applied with the view to, or with the effect of, creating unnecessary obstacles in trade among the Member States. 3.2.Exporting – importing activities and cross border trade of agricultural commodities in Quang Tri 3.2.1.Export – import turnover of Quang Tri Province (2010 – 2015) The total export turnover over period 2010 - 2014 increased rapidly, from 63.4 USD million in 2010 to 234.43 USD million in 2014. The growth rate of annual export turnover is very high, reaching 46.7%/ year (Table 1). However, to compare with other provinces, a size of export of Quang Tri is still small and not commensurate with the potential and advantages of Quang Tri province. Structure of exporting commodities has shifted in a positive direction, the proportion of forest products and light industrial products, handicrafts has surged in recent years. The export turnover of light industry commodities and handicrafts accounted for 15.83% in 2010 has gradually increasedto 31.1% in 2013. The major export items include: wine, wood products, plastic products, commercial electricity, comsumable goods, and processed foods. Export value of forestry products accounted for 22.67% in 2010 rose to 34.53% in 2013. The export of forestry products are lumber, refined turpentine. Meanwhile heavy industry group and minerals tended to stabilize but the share of this commodity group decreased over annually.These commodities accounted for 16.74% in 2010 and only 8.1% of the total exports in 2013. The main export products include fertilizer, motorbike and bicycle tires, construction steel, refined titan. Over period 2010-2014, although exports of agricultural products doubled from 19.1 USD million in 2010 to 38 USD million in 2014, but the share of this commodity group decreased rapidly from 30.18% in 2010 to 18.49 % in 2013. The main agricultural products for exporting of the province in recent years include coffee, rubber, cassava starch and pepper. While rubber exports have decreased rapidly in recent years, the volume of coffee exports soared in 2014. In particular volume of cassava starch’s export have increased more than 2 times, from 16,840 tonnes in 2010 to 38,540 tonnes in 2014. - The structure of export markets: Quang Tri province’sgoods are exported to some main markets: 64.3% exported to the Chinese market includes lumber, minerals, agricultural products (starch, rubber), plastic products; 26.77% exported to Laos (fertilizers, construction. Steel,alcohol, processed foods, comsumable goods, motorbike tires. The export market of agricultural products focused primarily in some countries, for example, coffee exported mainly to Germany, tapioca and rubber exported to China. - Main exporting enterprises: the main exporters include State Own companies, private and FDI ones. The private companies have played an important role in exporting. These companies represented for 68% of the total export turnover of the province. Table 1: Export – import of Quang Tri province, period 2010 – 2015 (Unit: Million USD) 581
6. Estimate 2010 2011 2012 2013 2014 2015 1. Export 63. 38 80. 78 95. 75 132. 28 234. 43 210. 00 - Heavy industry and minerals 10.61 11.66 14.89 10.72 11.66 15. 00 - Light industry and handicraft 10.03 10.94 9.56 41.14 45.00 50.00 - Agricultural products 19.12 30.10 29.13 23.87 38.00 40.00 - Forest products 14. 36 18.92 31.86 45.67 69.33 75.00 - Others 9.23 9.15 10.29 10.86 70.43 30.00 2. Import 68.43 81.92 122.40 151.67 230.00 230.00 - Production materials 57.13 68.30 101.30 114.79 160.00 165.00 - Consumable goods 6.64 7.48 12.26 23.83 33.00 40.00 - Others 4.65 6.13 8.84 13.04 37.00 25.00 3. Total 131.81 162.71 218.16 283.95 464.43 440.00 Source: Quang Tri Department of Industry and Trade Table 2: Main exporting commodities of Quang Tri province, over 2010-2014 (Unit: ton) 2010 2011 2012 2013 2014 Rubber 1678,0 3120,0 2200,0 1891,0 1450,0 Coffee 2708,0 1650,0 2740,0 2586,0 8950,0 Cassava starch 16840,0 24300,0 38564,0 30845,0 38540,0 Source: Quang Tri Yearly Statistical Data, 2015. 3.2.2. Import - Import turnover of the province in the period 2010-2014 has also increased from 68.44 USD million in 2010 to 230 USD million in 2014. On average,annual growth rate is 19.7% for the period 2010-2014. - Structure of import: Production materials have always occupied a large share of imports, but imports of consumable goods have increased sharply in recent years. Import turnover of production material group accounted for 83.49% in 2010and 75.69% in 2013. The major import items include: timber and sawn wood (imported from Laos accounted for 44.96 %), gypsum (imported from Laos accounted for 1.39%), and machinery and raw materials (imported from Thailand and China, accounted for 29.3%), Consumable goods accounted for 9.7% in total imports in 2010 increased to 15.72% in 2013. The major importing commodities include sticky rice (imported from Thailand, accounting 582
7. for 4.32% ), alcohol (imported from Laos and Singapore, 4.16%), electronics (imported from Thailand, 3.39%), others (imported from Thailand, Laos, China - accounted for 12.33%). - Structure of importingmarket:goods imported to Quang Tri are from a number of markets: 30.2% from the Thailand, 51.83% from Laos, the remaining goods are imported from China, Singapore. - Importing enterprises: the private enterprises play an important role in importing. The commodities imported by the private companies accounted for 80% of total import in recent years. 3.2.3.The exports ‐ imports through Lao Bao and La Lay border gates Information from Table 3indicated that the Lao Bao and La Lay International Border Gates play an important role in terms of export - imports of goods along the EWECof Quang Tri province. Over the period 2010-2014, total import-export turnover through theseborder gates increased from USD 261.9 million in 2010 to 485.6 million in 2014. However, a detailed analysis shows that the flow of goods is mainly importing from other countries into Quang Tri province of Vietnam and import through these main gates has gradually increased. By contrast, the flow of exports from Vietnam to the countries along to the EWEC through the border gates of Quang Tri is very low. In recent years, import often represents high proportion of total exports - imports. For example, in 2010 value of imports was 227.6 USD million USD, accounted for 86.9% of total exports – import turnover increased to 438.4 USD million in 2014, accounting for 90.3%. The key imported commodities include wood and timbers, gypsum, copper plates. The rapid increase in wood and timber imports has mainlycontributed to a sharp increase in import turnover over period 2010-2014. According to the latest statistical data from the Provincial Department of Customsshow that wood/timber imports increased from 61.9 USD million in 2010 to 319.4 USD million in 2014. At the same time, export turnover tends to rise slightly from 34.3 USD million in 2010 to 72.1 USD million in 2012, but it decreased gradually in the last 3 years. In 2014 exports reached only 47.1 USD million, marking a decrease of 23.9% compared to that of the previous year. The main export commodities included the comsumable goods, construction materials and agricultural products. 583
8. Table 3. The exports - imports through the main border gates (Unit: Million USD) 2010 2011 2012 2013 2014 1. Export-import 261. 85 391. 39 364.86 504.53 485.55 value Export 34.25 57.78 72.08 61.85 47.14 Import 227.59 356.05 292.77 442.68 438.41 2. Main export goods Consumable goods 17.12 28.89 36.04 30.92 23.57 Construction 10.27 17.33 21.62 18.55 14.14 materials Agricultural 6.85 11.55 14. 41 12. 37 9.42 products 3. Main import goods Timber 61.96 133.86 93.99 254.56 319.38 Gypsum 3.65 3.41 3.88 3.82 2.24 Copper 69.36 69.18 53.48 27.03 24.40 Source: Custom office at Lao Bao and La Lay Border Gate 3.2.4.Export – import of Agricultural commodities Export –import through the main border gates Quang Tri has many agricultural products which have comparative advantages in exports such as coffee, rubber, pepper, tapioca However, most of these commodities are mainly exported to the China and some other countries. Agricultural goods exporting to the countries along to EWEC are very few. The statistical data shows that exports of agricultural products to these countries increased from 6.85 USD million in 2010 to 14.41 USD million in 2012 but it droped to 9.43 USD million in 2014. Some agricultural commodities for export include garlic, peanut, piglets, dried seafood. However, exports of agricultural products to the countries along the EWEC, especially Thailand tends to decline and facing many difficulties.In 2014, the export of agricultural products across the border accounted for 20% of total export turnover. Some major export commodities include garlic, dried seafood, fish sauce, noodles,. Import: The agricultural products imported through border gates of Quang Tri province include fruits, rubber, raw coffee, sticky rice, glutinous rice. In recent years on average 2,500 to 3,000 tonnesof sticky rice and 3,000 to 3,500 tons of glutinous rice was annually imported. Export –import through the small border gates Information from surveys at the border gates indicated that the majority of agricultural products along the border region are traded through small border gates and there is no statistical data on these trading activities. However, like export-import through the main border gates, imports are also the main flow of border trade of agricultural products in the small border gates of 584
9. Quang Tri province. The key commodities traded through unofficial ways includesticky rice, glutinous rice, corn, coffee, cassava, bananas, livestock (cattle) Majority of these agricultural products are raw materials for the processing plants in Quang Tri, for example fresh coffee purchased from Laos is raw material for a number of coffee processing facilities in Huong Hoa; fresh cassava purchased from Laos is raw material for Huong Hoa Cassava Processing Factory. In particular, a large amount of fresh bananas from Laos are purchased and exported to China and sold in the domestic market of Vietnam. Information from group discussions shows that this trading flowis rapid growth in the recent years due to cross-border farming and the shift of production and trading activities of the local population living along the border. In practice, there is a number of Vietnamese people in Huong Hoa have leased land in Laos for production of bananas, coffee and cassava. These crops have played an important role in term of income generation for farmers living along the border of the two countries Vietnam and Laos. At Huong Hoa district in recent years there is a large area of bananas planted in Laos, banana was harvested and transported through small border gates for exporting to China. Banana is one of the the most important crops of Huong Hoa district where banana was popularly planted with a large area (around 2,311.8 hectares). Banana is mainly planted in the areas along the border corridor of Quang Tri province with Laos, especially in areas along the region of border gates of Densavan - Lao Bao. Majrity of bananas are local varieties (Chuối Mốc) and planted on the hill sides. Farmers do not use fertilizer and chemicals (pesticide). So the quality of bananas is highly appreciated and customers are willing to pay higher prices for the banana of this area to compare with banana in other regions such as South Central, Highlands However, due to famers do not use fertilizers banana productivity in this region is low and tend to gradually decrease after few crops. Majority of banana are collected by the traders and companies to export to China. For example, Huy Thien Company said that every day his company buys about 2 trucks of bananas (approximately 39 tons). Banana is exported to China with transport costs of about 26 VND million/truck and about 70 VND million/truck in case using package carrier with air conditionner). Prices of banana exporting to China are unstable. On average, price of banana isfrom 6,000-7,000 VND/ kg. Sometimes price of banana peaked at about 9,000 VND/ kg. But, it can go down to about 2,500 -3,000 VND/ kg if Chinese traders reduce their buy. Informmation from Huy Thien Company indicated that 90% of it’s banana input is coming from Laos in which majority of banana is provided by local people who lease land in Lao for cultivation. However, trading activities across borders between Vietnam - Laos are now facing many difficulties, including: Most of the land lease agreements between the local farmers and the Laos farmers are informal ones (oral contracts). These contracts do not guarantee the legal since it only approved by village leaders (equivalent to chairman of the commune in Vietnam) without 585
10. permission from the higher authorities of Laos government. The problem becomes more complicated when two parties agree secretly toghther without a legal warrant. The transportation of bananas from Laos to Vietnam is also facing many difficulties, disrupt border trading activities for the banana commodity. Farmers have much difficulty for their travel due to the Laos authorities allowing only cars crossing the borders. Meanwhile local farmers mostly use motorbikes which are considered to be suitable for their travel and transportation of bananas. Motorbike is very useful in the areas where roads are in poor condition and cars can not access. Due to the use of motorcycles crossing the main border is not acceptable, local farmers often use the trails, shortcuts along the border. The unorthodox crossing border raises many complicated issues. To pass the borders local farmers have to pay many unofficial fees to the Lao local farmers, the police, border guards. These fees are not based on a offical regulation at all and not transparency. For example, local farmers in Laos often collected 10,000-15,000 Kip/ person for anyone crossing their land. Similarly, Vietnamese local farmers have to pay to Lao police and border guards for their banana tranportation from Laos to Vietnam. Normally every trip Vietnamese local farmers must pay 2-3 times for Lao police and border guards. Approximately each farmers in the border communes of Huong Hoa district has daily paid from 270,000 - 350.000 VND for their travel and trasportation by motorbikes. Especially these payments are the unofficial levies. In the case of transporting banana by rickshaws which are currently applied by a number of households in Lao Bao to collect bananas, the daily fee for each riskshaw is up to 700,000VND. This fee imposes on the times of travel acrossing the border but do not take into account of volume of commodity. In addition, issues related to procedures, customs clearance at the border gate are causing many difficulties. Because trading activities in Lao Bao related to importingfresh bananas from Laos, then exporting directly to China, so requirement time for custom clearance and shipping time is very strict1 (if shipping time is over requirement level, the quality of banana will rapidly decrease and it’s prices will be reduced to 50%). Meanwhile, the time to do the customs clearance procedures in the case of transport by truck usually takes 3-4 hours. To meet this requirement time, the majority of Vietnamese traders often use rickshaws to transport bananas from Laos through small border gates to avoid consuming time from customs clearance procedures if transported by truck, but the rate of damage in case of use of richshaws is up to 30% (instead of 10% by trucks). So this problem alsomakes muc difficult for banana trading enterprises today. 1According to traders, total time for collecting bananas, transport, customs procedures and deliver bananas to Chinese traders through the border gates in the North is 24 hours. This is the time to maintain the quality of bananas (e.g. banana looks fresh with blue skin). if time for regrouping, doing customs procedures delays the quality of banana is rapidly decreased when it is transported and passed to Chinese trades in the border gates in the North (banana skin becomes blackened). Depending on the quality bananas prices would be very different, it’s price will decreased by 40-50% if banana skin was blackened due to the longer time for transportation. 586
11. In summary, information from group discussion indicated that besides timber bananais one of the most important agricultural products in term of generating source of income for local people in border regions, especially the Lao Bao town. The volume of bananas daily imported from Laos for exporting is about 100-150 tonnes, peak times can be up to 200 tons/ day (this figure do not include the bananas imported and sold in the frontier local markets).Therefore, local government and other authorities should negotiate and make recommendations to the Lao governments to remove the obstacles to production and trading activities, especially bananas along EWEC. It is good if the free zone for production and trading activities will be created to provide opportunity for local people living in the border region of both Laos and Vietnam. The first priority should be given to the remove the unreasonable trade barriers such as unofficial fees and expenses caused by inappropriate regulations. 3.2.5.The challenges of border trade of agricultural commodities Firstly, the limited production capacity and low competitive ability is the biggest obstacle for the development of cross border trade of agricultural commodities. Along the border areas, overall size of production of local farmers is small and their production cost is relatively high due to manual labor, high transport costs, and thelow level of application for high technology). The agricultural crops (cassava, bananas, upland rice, coffee ) are mainly cultivated in the fragile areas on slope sites. The farmers’ knowledge and skills about sustainable production is limited. They mainly practice mono-crop culture and do not pay enough attention to soil protection and to improvement of soil fertility. Consequently, the quality of land rapidly deteriorated after only a few harvests and becomes unfertile waste land. The crop productivity is low. Secondly, there is wide price fluctuation and instability of the output market. This problem may become more severe since the majority of the key agricultural products of Quang Tri such as cassava, banana, and rubber are mainly exported to Chinese market where there is lack of transparency in market information and trade policy for transactions at border gates between Vietnam and China, regulationson quality control in particular. Consequently, there are negative impacts on agricultural products of Quang Tri because most of them are raw products and low level of product diversification. Thirdly, there is bottleneck in value chains of the agricultural commodities because of the lack of market information, lack of linkages among the actors and weak governance. From the farmers to final buyers there are many layers; some of them strongly control the chains. Meanwhile, the quantities marketed from each household are often small and there is lack of farmers’ organizations. As a result, there is much pressure during trade negotiations, farmers are disadvantage in term of trade since they have to sell their products at low farm gate price and buy their inputs at a high price. The market margin for agricultural products is relatively high. Fourthly, the majority of agricultural products in the border areas are consumed in the form of raw materials due to lack of processing facilities. This has reduced the quality and competitiveness of products in market and their price is low. 587
12. Fifthly, although there is much effort to simplify and reduce barriers to trade, production, transport, the exporting activities of agricultural commodities along the border region have many obstacles due to lack of legal basis for the lease of land in Laos, the Lao regulations on the means of transport (only used cars), fees and charges across borders (formal and informal), and administrative procedures at the border. Finally, infrastructure (roads, markets, warehouses ), in the border areas is underdeveloped particularly in Lao Bao border gate area and La Lay has limited the ability of producers in access to markets to sell their products. Some difficulties to facilitating cross border trade at Lao Bao border gate Change in border economic management policy - There are some problems due to a recent change in tariff policy for goods imported into the Lao Bao Special Economic and Trade Zone. Specifically, according to Article 23, decision No 11/2005, goods imported to Lao Bao Special Economic and Trade Zoneenjoyed preferential policies: "Goods produced, processed, recycled or assembled in Lao Bao SETZ with the use of materials, components imported from foreign countries being imported into inland are only to pay import duties on raw materials and components imported to produce these products"(Article 23, decision 11/2005). However, there is much change in tariff policy since Circular 109 of the Ministry of Finance has been applied "goods have been imposed immediately import tax when they are imported from foreign countries into the duty free zone of the border econmic zone are commodities imported from abroad into non-tariff areas, except for goods imported to implement investment projects ". Consequently, the enterprises at Lao Bao SETZhave full duties of tax payment for their trading business like other domestic enterprises. This change will not give incentives of attracting investment into Lao Bao SETZ, which will make negative impacts on the lives, jobs of locla people in Lao Bao border town. - In addition, the regulations "goods are imposed immediately import tax when they are imported from abroad" will make the commodities to be more expensive. As a result, these commodities are no longer to attract to the visitors’ shopping. Besides, Circular 109 also provides 13 groups of goods without custom procedures when they are exporting from inland into Lao Bao SETZ. Among of them there are many commodities accounted for a large share of turnover such as cooking oils, milk; noodles, sorghum, noodle soup; confectionery; soap, washing powder, shampoo, toothpaste. This means that import declarations from these items will no longer applied and duty-free polcies are not likely to applied for these commodities. - Other problems are related to the production and transportion of agricultural products of local farmers. Because there are a number of Vietnamese farmers in the Lao Bao Economic Zone are conducting agricultural production (cassava, rubber, banana, ) in Laos and then using motorbikes to transport agricultural products to Vietnam. However, the Lao government only allowed to use cars/trucks for transportation of agricultural products from Laos to Vietnam. This 588
13. leads to many problems, disrupt cross boder trade of agricultural commodities between the two countries of Vietnam - Laos. Custom control According to Custom officials, awareness of local people about la, regulations on trade is limited,although there is much support from custom officals. For example, concerning the regulation on value limitation of imported goods for customs clearance procedures, although there is much explained by custom officals the local residents often violates since their goods traded daily often exceeds the prescribed permit (2 VND million/ day). Even many local traders are less likely to do custom clearance procedure at the border gates. Concerning the tariff preference agreements between Vietnam - Laos, now this policy has no long-term provisions, which are often renewed each year (around February or March). This leads to many problems for thebusiness enterprises who engaged in agricultural imports in the period from January to March every year have paid import tax and they only received tax refund after the new extension of the tariff preference. In practice, more agricultural commodities are imported in the first quarter to meet Tet holiday. It means that the traders had to pay much import tax and receive tax refund later. This policy has caused many problems due to cumbersome andcomplicatedprocedures. So, there is neccessary to have specified "automatic renewal" for preferential tariff agreement. Concerning the policy "one-door one-stop", although it has much contributed to simplize the custom clearance procedures there is a lot of shortcomings because there is lack of continuous synchronization between the relevant authorities in the process of joint inspection, control. Specifically, there are separate agreements signed by Vietnamese - Lao customs for common control and Vietnamese – Lao border guard signed for jointsecurity control. In addition, the step by step process for common control between Vietnamese and Lao relevant authorities is still not clear enough. So there is necessary to review for the lessons learnt to improve the process on the joint inspection and control. To some extents, mechanisms and policies from Laos side is not transparency enough. For example, some drivers who often transport timber and fruits through Lao Bao border gate said that the custom clearance procedures are often delay from Laos side but they are not informed about the reasons for the delay.Besides, there are not transparency in some charges. To ensure the transparency in trade policy to create favorable conditions for cross border trade, there is neccessary to have more administrative reform from both Vietnamand Laos. Concerning automatic system for e-custom clearance procedures, at present, Vietnamese custom has applied VNACSS/ VCIS (e.g. 100% automatic system), while the Lao custom has used the system in which only 50% of custom clearance procedure is automatic. This also makes it difficult for common control between Vietnamese and Lao customs. Sanitary and phytosanitary measures at Lao Bao International border gate At present, equipment and facilities for quarantine activities at Lao Bao border gate is limited. Besides, there is no quarantine zone for sanitary and phytosanitary measuresat the Lao 589
14. Bao border gate which has caused much difficult for business enterprises. So, it is neccessary to build the quarantine zone with good facilities for sanitary and phytosanitary measuresat border areas. This will create more favorable conditions for both department of the sanitary and phytosanitary measuresand the enterprises. Currently, muatual recognition for sanitary and phytosanitary is still not applied at the Lao Bao – Dansavanh border gates. This has made much difficult for trading enterprises. Therefore, it is neccessary to applymuatual recognition for sanitary and phytosanitary, as well as to improve the equipment forsanitary and phytosanitary control and create the favourable conditions for cross border trade of cattles. 3.3. The solutions supporting development of cross border trade of agricultural commodities in Quang Tri 3.3.1. Cooperation on development of agricultural production areas linked with processing and exporting along the border between Vietnam – Laos One of the main advantages of the region along the border is relative abundance in land, especially in Laos. The analysis in the previous section shows that the region has great potential to produce some agricultural products such as bananas, cassava, and coffee. In recent years farmers of the two countries have cooperation in the production and exchange of these agricultural commodities. The income from these crops is very important for local people of both two countries. However, there are many problems in the production, trade and transportation of agricultural products due to the lack of policy and legal basis for the establishment of production region along the border to encourage farmers of both countries to cooperate in production and trading of agricultural products. In order deal with these problems the Vietnamese Government and the People's Committee of Quang Tri province should negotiate with the Lao government and the neibouring provinces of Laos for cooperation toestablish the cross-border production region of key raw materials such as coffee, bananas and cassava. These will be processed and exported to other countries.It is necessary to introduce policy mechanism that links the farmers between two countries. Information from group discussions indicated that farmers in Laos have much land, while Vietnamese farmers in Lao Bao town have much capital, much experience in cultivation technology. So, it is good if there is policy to create strong linkages and cooperation on production of banana, coffee, cassava, forestry between the farmers of the two sides of the border. In fact, the initial ideas of the policy makers of the both coutries who proposed the establishment of “Special Economic and Trading Zone” wanted to have “Free Economic Zones” located between the two port B of Lao Bao and Dansavan. Information from group discussion indicated that the creation of "Frontier Free Economic Zones" or "Free Zone" between the two port B is extremely necessary to link the production of major agriculture commodities such as coffee, bananas, cassava associated with deep-processing plants to improve the 590
15. commodities’quality and competitiveness. However, the fact that the formation of “an open econmic area” has met many difficulties due to a lack of cooperation agreements and policies direct the implementation of the two governments and the relevant provinces. Information from group discussions showed that currently the Lao government and Savannakhet province are promoting the construction of Densavan to be the special economic zone. By contrast, there is lack of coordination between the Vietnamese relevant ministries to implement development of border economic zones. Besides, the Vietnamese government allowsestablishing many border economic zones but the investment for them is not adequately. Consequently,there is lack of strong direction from Central government and the vitality of the border gate economic zones has gradually decreased. Especially, the recent change in the management policy of border economic zones endangered the advantages of the Lao Bao Special Economic and Trade Zone. So, it is necessary to propose the central governmentto apply the special mechanism orginated from thepolicy of the two Central Politburo Parties since 1998. Two provinces (Quang Tri and Savanakhet) should apply the ideas and policies on liberalizing the production and trading of the agricultural products between the two economic zones by the most favorable way. Besides the formation of the production region, PPC should support and attract the food processing enterprises to invest in the Lao Bao Special Economic and Trade Zone. Thanks to the proccessing enterprises the quality of agricultural products will increase as well as help local farmers avoid from the collapse of the agricultural products market caused by unstable supply and demand. For example, the construction of Huong Hoa Starch Factory has made an important impact on the development of the cassava produciton region and generate stable income for many farmers in the region. Similarly, other key agricultural products such as bananas, coffee of the border areas, there is neccessary to introduce the policies to attract investment in building factories for processing. 3.3.2. Improving competitiveness for key agricultural commodities The analysis in the previous sections shows that the border region has some agricultural commodities with good potential for development. However, the competitiveness of these agricultural commodities in the border region in general and in particular in Huong Hoa district is very low. Because, to compare with other countries along the EWEC, especially Thailand, the structure of agricultural commodities of Quang Tri are similar. The main agricultural products of Quang Tri such as rice, rubber, coffee, pepper, tapioca are also the main agricultural products forThai export. In particular, to compare with Thailand, the competitiveness of agricultural products of Quang Tri in general and in the border districts like Huong Hoa, Dakrong particular is lower. These findings suggest that interventions to improve competitiveness for key agricultural commodities should focus on the following issues. Firstly, raising awareness among stakeholders, especially policy makers about the opportunities and challenges of agricultural trade in the context of the implementation of the AEC and FTAs. 591
16. Secondly, the solution to the sustainable development for the key agricultural commodities should be applied. On the production side, it is necessary to apply an integrated farming system with priority use of advanced environmentally friendly technology such as intercropping techniques, erosion control, improve and enhance soil’s fertility are very important. Due to the livelihood of the local farmers strongly depending on agricultural production, the policies of enhancing the land productivity and labor productivity in the direction of using more efficient and sustainable should be introduced. The introduction of new varieties, utilizing by- products for livestock production and fertilizer is also very important. Market demand for organic products is likely to rise sharply, so it is necessary to apply environmental friendlytechnologies to produce high-quality products. Thirdly, there are policies to strengthen the linkage between farmers and the final processing factories through i) the establishment of farmer organizations to raise awareness, strengthening of institutional capacity and organization management; ii) encourage the linkage between the farmers in the organizations through production planning, supply of materials, post- harvest activities (storage, packing, sorting), and supply to the market; iii) encourage the contract farming between the farmers groups and businesses enterprise as starch processing factory, banana and coffeer processing plants; iv) dissemination of market information and improved market extension services to link farmers to markets; v) provide long-term credit (in the case of farmers applying integrated farming system with crops and livestock); vi) supporting the participation of farmers' groups in the value chains. 3.3.3. Solutions related to trade of agricultural products It should focus on improving the quality of some key agricultural commodities of the border areas such as coffee, banana, peperbased on deep processing technology. In addtion, the marketing solutions such as grading, brand buiding and packagingshould be applied to create more added value for agricultural products of the province, as well as help improve competiveness of the agricultural commodites exporting to the world market. 3.3.4. Solutions related to collection and transportation of agricultural products First, there is neccessary to organize the clusters for collecting agricultural productssuch as farmers’ groups based on the contract farming will be directly signed between the companies and the farmers groups. In order to support this relation the government of both countries should create enabling environment for the enterprises business, removing the barriers to trade and investment, red tape, bureaucracy, administrative delays. Because the current value chains of of agricultural products in general, especially bananas are strongly controlled by midlemen, farmers earned very few from value added from their products (most value added are distributed to traders). In addition, there is needs to negotiate with Lao government to change the level pf shipping agricultural goods acrossing borders from 2 VND million at present to 5-7 VND million. This is very stuitable for ensuring the linkage between the farmers of the two countries Vietnam - Laos. 592
17. Secondly, the PPC of Quang Tri province in particular, as well as the Vietnamese government in general should enhance dialogue, negotiations and exchange of information with the Lao government, and especially the Savanakhet province to reduce and eventually remove informal regulations which are obstructing trading activities across the border at Lao Bao – Dansavan border gates (e.g removing the ban on use of motorbike for transporting agricultural products from Laos to Vietnam,elimination of the informal fees imposing on the farmers travel and transportation of agricultural products from Lao to Vietnam). Thirdly, there is need to allow the business enterprises using trucks for transporting agricultural products, banana in particular from Laos to Vietnam, instead of using rickshaws (this will help reduce the level of damage to agricultural products from 30% to 10% and saving tranportation cost about 10 VND million/ trip). There is also need to open special ways for custom clearance fortransportationvehicles of agricultural commodities. Besides, the provision of identity cards for border residentsor special license to vehicles for transporting agricultural commodities to avoid from wasting of time to do administrative procedures at the border gates, 3.3.5. Solutions to promote cross border trade of agricultural commodities Firstly,according to Circular 109 issued by the Ministry of Finance dated 15 August 2014, the goods will be imposed import tax when they are imported from abroad into duty free zone of border economic areas. This has caused many difficulties for the trading activities of businesses enterprises and small traders in Lao Bao trading zone. Due to tax levied on imported commodities (ie importers pay tax at Gate A) the majority of consumerable goods (clothing, electronics, ) imported into Lao Bao trade zone are becoming more expensive and no longer attractive to customers than before. Besides the elimination of duty free policy (one VND million/ person/ day) for tourists to shopping in duty free area in Lao Bao SecialEconomic and Trading Zone has led to a rapid decrease in a number of visitors. Information from group discussion with 20 traders in Lao Bao Trading Centre and the town of Lao Bao indicated that their customers has declined by 30-40%. This has caused many problems for their business operations in recent months. To deal with this problem the relevant stakeholders said that the government should continue to apply the tax preference for commodities importing to duty free area as before (as decision 72 issued by Prime Minister). Besides, the government should continue to implement tax exemption policies at the allowed level. Information from tradersinterviews in Lao Bao Trading Centre shows that there is necessary to apply tax exemption for the key commodities which are attractive to the visitors’ shopping at border gate economic zone. According to traders in order to attract tourists, the Government should continue to maintain the tax exemption policy (one VND million/ person/ day) as before. This is in line with international practice and will create conditions for local people living in the Lao Bao town of Lao Bao and Khe Sanh could boost their trading activities and improve their imcome. Secondly, there is need to have supportive policies to attract business enterprises, especially the agro-processing enterprises to invest in the Lao BaoSpecial Economic and Trading 593
18. Zone. Due to the disadvantages of the border economic zone,it is difficult for Lao Bao Special Economic and Trading Zone to compete with other economic zones incalling for enterprises’investment in production, if there are lack of favourable policies such as land accessibility,infrastructure, tax exemption. One of the most important advantagesof Lao Bao Special Economic and Trading Zone is closed to rich raw agricultural products from Laos, so there is much potential for agricultural processing industry. But this opportunity will be forgotten if Quang Tri province does not have supportive policies to attract businesses enterprises. Information from group discussions showed the previous years there are a number of businesses enterprise invested in the Lao Bao Special Economic Trading Zonedue to the appeal of favourable tax policy. However, the recent change in the managment policy on border economic areas will cause many difficulties for the business operation of the enterprises, may even lead to bankruptcy, or stop their business operations. Thirdly, there is need to have supportive schemes to generate alternative employments for local people living in areas of Lao Bao border gate due to the negative impacts by 109 Circular of the Ministry of Finance which has caused a rapid decrease in the investment of business enterprises as well as a number of visitors to Lao Baoby tax-free sales no longer application). The life of the local people are having a lot of difficulty, even new immigrants have intended to move to other areas. This will make negative impact on the lives of local people living along the EWEC in general, and indigenous peoples in the Lao Bao border town of in particular. Fourth, there is necessary to consider reducing infrastructure feesat border gates, particularly for the transportation of agricultural products, to encourage cross border trade of agricultural commodities at the border gates of Quang Tri. A high infrastructure fees will likely reduce the competiveness of the Lao Bao border gate to other border gates such as Cha Lo in Quang Binh, Cau Treo in Ha Tinh province. Information from customs officials showed that before each day there are about 10 fruit containers of fruit shipping via the Lao Bao border gate, but now thes means of transportationswitching to Cha Lo border gate due to higher infrastructure fee imposed by Lao Bao Border Gate.Fruitsare characterized by large volumes, cumbersome but they are relatively low value. A high level of infrastructure fee will increase transaction cost and reduce profits of the business enterprises. Therefore, Quang Tri province to consider adjusting gate infrastructure charges atappropriate level, to ensure the interests of the parties. It isreasonable if infrastrucre fee is basically defined for different groups of commodities, value of goods and forms of entry (import or in transit). Fifthly, for La Lay economic zone, in order to develop cross border trading activities, particularly agricultural commodities. There is need much investment in infrastructure development, thereby increasing the attraction to business enterprises to invest in the economic zone of La Lay. Besides, there is necessary to have policies to promote the establishment of residential clusters and building markets along the border areas. 594
19. 3.3.6. Solutions to customs procedures and the work of animal phytosanitary, health control Firstly, regarding the Vietnam - Laos preferential tariffs agreement, Vietnamese government should negotiate with the Laos to make regulations "automatic renewal" of preferential agreements, rather than renewed for every year as at present. Secondly, related to the "one-door one-stop", there is neccessary to have a assessment to receive lessons learnt after few months of application. The government should stand out coordination among the relevant stakeholders to review the process for inspection and control of import and export goods across borders. The process of customs clearance procedures shoud be clear, simple and transparency. This process is neccessary to have an agreement by Lao Government to create favourable conditions for common implementation. Thirdly, the Vietnamese government should regularly exchange information and discusswith the Lao government to find the ways to remove the trade barriers such as unformal fees, customs clearance procedures to create favorable conditions for cross border trade of agricultural commodities. Fourthly, in order to create more favorable conditions for the plant and animal disease quarantine and control, there is neccessary to apply themuatual recognition for sanitary and phytosanitary and have isolated area with good facilities. Besides, the warehouse for storing agriculture commodities, especially frozen warehouse for fresh and perishable products should also build. REFERENCES ADB, 2006. Central Asia: Increasing Gains from Trade through Regional Cooperation in Trade Policy, Transport, and Customs Transit ADB, 2009. Regional Economic Impacts of Cross-Border Infrastructure: A General Equilibrium Application to Thailand and Lao PDR. Asean Trade in Goods Agreement (2009), www.trungtamwto.vn Ashley, C & Carney, D. (1999). Sustainable Livelihoods: Lessons from early experience DFID. Chambers, R. Conway, G. (1992). Sustainable Rural Livelihoods: Practical Concepts for the 21st Century. IDS DP296 Feb 1992. DFID (2000a). Sustainable Livelihoods Guidance Sheets Dorward, A., Poole, N., Morrision, J., Kydd, J., and Urey, I. (2003). Markets, institutions and technologies: Missing links in livelihood analysis. Development policy review, 21(3), 319-332. Ellis, F. (2000). Rural Livelihoods and Diversity in Developing Countries. Oxford University Press, Oxford, 273 p. 595
20. Kaplinsky, R. and Morris, M. (2002). A handbook for value market chain research. Canada: IDRC. Mekong Institute (MI, 2009). Cross-border Trade Outlook in the GMS Circulars 109/2014/BTC-TT, Guideline for implementation of Decision 72/2013/QD-TTg dated on 26/11/2013 of Prime Minister on mechanism, financial policy to border economic zone, Ministry of Finance, 2014 Vietnam – Lao Trade Agreement (2015), www.moit.gov.vn 596